TMI Blog2020 (6) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... strative indulgence, the disallowance cannot be calculated as prescribed by Rule 8 D in the ratio of investments made and considering the past history of the assessee wherein against exempt income earned and in assessment years 2006 - 07 and 2007 - 08 [ 2018 (12) TMI 1623 - ITAT CHANDIGARH] disallowance has been upheld by the ITAT. We direct the disallowance in the present case wherein the facts indicate that the assessee has earned dividend income. Direct the AO to restrict the disallowance in all u/s 14 A in the present case. This ground of appeal raised by the assessee is, therefore, allowed in above terms. Treatment of interest earned - as income from other sources OR income from business and profession - HELD THAT:- Since the issue of interest income to be taxable under the head other sources stands adjudicated by the ITAT against the assessee the said decision will squarely apply in the present case also and following the directions of the ITAT in the said year, we uphold the plea of the assessee to netting of interest expenditure against the said income directing the AO to allow netting of subject to there being direct nexus between the interest income earned as dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of ocean freight, forex gain already stand decided in favour of the assessee by the ITAT in preceding years in the case of the assessee itself. We therefore see no reason to interfere in the order of the LD. CIT(A) with respect to allowance of the aforesaid claims. As for claim of deduction u/ s 80 IB/ 80 IC of the Act on insurance claim received, the issue is restored back to the AO with the direction to adjudicate it in accordance with the direction of the ITA T in the case of the assessee on the identical issue in A. Y 2011- 12 Treatment of interest received under TUF Scheme as capital receipt . Sales tax subsidy to be treated as capital receipt - See Chaphalker Brothers Pune [ 2017 (12) TMI 816 - SUPREME COURT] Mat credit shall include surcharge and cess . See VMT Spinning Company Ltd. [ 2015 (7) TMI 1334 - ITAT CHANDIGARH] Interest income as assessable under the head Business Income is rejected but at the same time its plea of netting the said income is accepted and the AO is directed to allow netting subject to there being direct nexus between the interest income and expenditure incurred. - ITA No. 484/Chd/2019 And ITA No.611/Chd/2019, ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upholding the action of AO for treating line/bay charges amounting to ₹ 4, 00, 72, 000/- as capital expenditure instead of revenue expenditure. 4. Ground No. 2 relates to the issue of disallowance of expenses made pertaining to those incurred for the purpose of earning exempt income, as per the provisions of section 14 A of the Act r. w. r. 8 D of the Income Tax Rules. 5. Brief facts relating to the issue are that during the impugned year the assessee had earned substantial exempt income amounting to ₹ 1, 39, 15, 734 /- from holding of investments, for which voluntary and suo moto disallowance of ₹ 1 lac was made in the computation of income filed alongwith return of income. Not satisfied with the same the Assessing Officer (AO) invoked the provisions of section contained in Rule 8 D for making disallowance u/ s 14 A of the Act. Accordingly, the AO computed the disallowance under Rule 8 D(2) (ii) (iii) at ₹ 1, 64, 14, 855 /- and ₹ 45, 94, 325 /- respectively. 6. The Ld. CIT(A), following the decision of the first appellate authority in the case of the assessee for assessment year 2013 - 14, directed the AO to recompute the disallowance after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generating taxable income = 0.25 Crs 0.25 Crs In section 25 companies = 0.85 Crs 0.85 Crs Investments which yield dividend = 0.89 Crs 0.89 Crs TOTAL Investments = 97.15 Crs 86.62 Crs and to the possession of available surplus as under: Own Funds 31.3.08 31.3.07 Share capital = 57.77 cr. 57.77 cr. Reserves = 1114.37 cr. 1034.26 cr. Dep.Reserves = 1074.27 cr. 930.75 cr. 2246.41 cr. 2022.78 cr. 9. The Ld. Counsel for the assessee thereafter drew our attention to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the order of the ITAT, we find that the ITAT in the said years had taken note of the fact that the assessee had sufficient own funds for the purpose of making the investments and accordingly following the decision of the Hon' ble Apex Court in the case of CIT LTU Vs. Reliance Industries Ltd. (2010) 410 ITR 466 held that no disallowance of interest is warranted u/ s 14 A of the Act. Accordingly, the disallowance calculated as per Rule 8 D(2) (i i) was deleted by the I TA T. As for the disallowance of administrative expenses the ITAT noted that the substantial amount of interest had been earned by the assessee from its subsidiary companies where not much of administrative resources were used. Accordingly, the ITA T held that the disallowance of administrative expenses could not be done solely in the ratio of quantum of investments shown. The ITAT, therefore, considering the past history of the assessee and overall facts and circumstances of the case upheld the disallowance of ₹ 5 lacs as justifiable. The relevant finding of the ITAT in assessment year 2011 - 12 in ITA No. 787/Chd/ 2015 dated 14. 3. 2019 at paras 8 to 10 of the order is as under: 8. We have cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ministrative expenditure cannot be disallowed solely in the ratio of the quantum of the investments shown. He, however, has fairly admitted that the assessee has also received dividend of ₹ 4. 6 cores from the investment in other companies. The Ld. counsel has further submitted that the assessee has suo motto disallowed a sum of ₹ 2 lacs for the year under consideration on account of administrative expenses u/ s 14 A of the I. T. Act. 10. Considering the over all facts and circumstances of the case and submissions of both the parties and also considering the quantum of investment made, the amount of divided earned by the assessee from its own subsidiary as well from outside/other companies, in our view, a total disallowance of ₹ 5 lacs will be justified in this case on account of administrative expenses. However, since the assessee itself has suo motu made disallowance of ₹ 2 lacs, the assessee will be given the benefit of the same. 13. Considering the above and further noting the fact that in the impugned year also the assessee has demonstrated the availability of sufficient own funds for the purpose of making investment as being ₹ 2246. 41 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reating it as income from business and profession but considering the plea of the assessee that the netting of interest expenditure be allowed, had directed the AO to allow the same where a direct nexus between the interest income earned and interest expenditure incurred was there. Our attention was drawn to paras 4 to 6 of the order dealing with the said issue in assessment year 2006 - 07 as under: 4. Ground No.1: Vide ground No.1, the assessee has agitated the action of the CIT(A) in treating the interest income amounting to ₹ 1, 65, 17, 422 /- as income from other sources instead of income from business or profession as was claimed by the assessee. 5. The facts relating to the above issue are that the Assessing officer had treated interest from customers and suppliers amounting to ₹ 355. 28lacs and further interest from bank others amounting to ₹ 165. 17 lacs as income from other sources as against the claim of the business income. The Ld. CIT(A) held that since income on the delayed payment from customers and suppliers was intrinsically l inked with the business activity of the assessee, hence, the same was to be treated as business income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in this regard was that while the Revenue authorities had excluded the entire rent receipts, the expenses incurred for maintaining those accommodations for the employees should have been reduced therefrom and only the balance rental income ought to have been disallowed. 19. As for the miscellaneous receipts it was pointed out that the same related to the following: a) Damages against cancellation of orders from customers = ₹ 31, 10, 744 /- b) Commission from shipping companies = ₹ 7, 075 /- c) Other receipts = ₹ 1, 00, 356 /- 20. The Ld. Counsel for the assessee contended that there cannot be dispute about the fact that the damages received against cancellation of orders from customers had direct nexus with the industrial undertaking of the assessee and deduction u/ s 80 IC/ 80 IB of the Act was allowable in this regard. He relied upon the decision of the I TAT in the case of Pr. CI T, Delhi Vs. Bharat Sanchar Nigam Ltd. in ITA No. 476/2016 dated 1. 8. 2016 wherein the Ld. Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en received from Electricity Board on security deposit and being purely of business nature, the same was eligible for deduction u/ s 80 IB/ 80 IC of the Act. 22. The Ld. DR, on the other hand, relied upon the order of the authorities below contending that in the absence of nexus with the industrial undertaking, the disallowance of deduction u/ s 80 IB/ 80 IC of the Act of the Act on the above incomes had been righty upheld by the Ld. CI T(A). 23. We have heard the contentions of both the parties. I t is settled law that the deduction u/ s 80 IB/ 80 IC of the Act is eligible on the incomes which have first degree nexus with the industrial undertakings of the assessee. There is no dispute about this proposition at all. In this backdrop, considering that the rental income had been received by the assessee from letting out accommodation to its employees, there is clearly no nexus of the said income with the industrial undertaking of the assessee and the claim of deduction u/ s 80 IB/80 IC of the Act, therefore, we hold has been rightly disallowed by the Ld. CIT(A). But at the same time, we are in agreement with the contention of the Ld. Counsel for the assessee that it is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... others and rental income, which we direct the AO to restrict the disallowance to the net rental income excluding the expenses incurred for earning the same. Ground of appeal No. 5 raised by the assessee is partly in above terms. 25. Ground of appeal No. 6 raised by the assessee relates to the issue of allocation of head office expenses to units claiming deduction u/ s 80 IB/ 80 IC of the Act. 26. Briefly stated the AO had allocated head office expenses on the basis of turn over for the purpose of calculating the profits of the units eligible for deduction u/ s 80 IB/ 80 IC of the Act. The Ld. CIT(A) directed the AO to allocate head office expenses net of head office income for the said purpose following the decision of the ITA T in assessee s own case for assessment years 2006 - 07 and 2007 - 08 in ITA No. 1429/Chd/ 2010 and ITA No. 270/Chd/ 2011. 27. Before us the Ld. Counsel for the assessee was unable to give any reason for not following the decision of the ITA T in the preceding year as done by the CIT(A). He was unable to point out any distinguishing facts in the present case. In view of the same, since the Ld. CIT(A) has followed the order of the ITAT in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended that the issue stood covered in favour of the assessee 32. The Ld. DR though fairly conceded to the above, however, relied upon the orders of the authorities below. 33. In view of the above since identical issue already stands decided in favour of the assessee by the I TAT in assessment year 2011 - 12 and 2012 - 13 and no distinguishing facts have been brought to our notice by the Ld. DR, the said decision will apply in the present case Assessing Officer, following which we hold that the line/bay charges to be revenue in nature. Ground of appeal NO. 7 raised by the assessee is accordingly, allowed. 34. In effect the appeal of the assessee is partly allowed. We now shall take up the departmental appeal in ITA No. 611/Chd/ 2019. ITA No. 611/Chd/ 2019 (A. Y. 2008 - 09 - Revenue s Appeal): 35. Ground No. 1 raised by the Revenue reads as under: Q.I. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing interest from customers suppliers amounting to ₹ 3, 19, 43, 971/- to be treated as business income as against A.O. treating the same as income from other sources? 36. The issue raised in the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49, 265 10/16/2007 Loss due to fire in H. Plant 586, 706 285, 612 10/16/2007 Claim for mobile set 1, 800 1, 800 12/27/2007 Marine Claim due to loss of yarn 105, 920 105, 920 828, 533 442, 597 Auro Textiles Date Description of Claim Loss Suffered Claim Received 9/25/2007 Claim for Mobile Set 3,200 900 3,200 900 Auro Spinning Mills Date Description of Claim Loss Suffered Claim Received 8/27/2007 FIRE CLAIM OF BLOW ROOM MPM 8 IN HALL 5 163, 715 136, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady held that the interest income received on delayed payment is in fact part of the sale consideration/receivable from the customers and we have also held that the same to be treated as business income and since the aforesaid receipts are relating to the sale receipts of the assessee of the produced manufactured, hence, we do not find any infirmity in the order of the CIT(A) in this respect. In the second part of ground No.2, the Revenue has agitated the action of the CIT(A) in directing the Assessing officer to allow deduction u/s 80IB and 80IC and exemption u/s 10B on profit after excluding loses debited in the accounts in respect of which insurance claims were received. The Ld. Counsel for the assessee in this respect has invited our attention to the paper book page 2 wherein the details of the items has been given on which insurance claim was received. However, after perusal of the same, it is not clear as to which of the items constituted capital assets and which of the items constituted trading asset of the assessee. We therefore, restore this issue to the file of the assessee to bifurcate the items between capital assets and trading assets and to allow the claim in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the Ld. Counsel for the assessee that the issue of claim of deduction u/ s 80 IB/ 80 IC of the Act on interest income received from customers and misc. receipts in the nature of ocean freight, forex gain already stand decided in favour of the assessee by the ITAT in preceding years in the case of the assessee itself. We therefore see no reason to interfere in the order of the LD. CIT(A) with respect to allowance of the aforesaid claims. As for claim of deduction u/ s 80 IB/ 80 IC of the Act on insurance claim received, the issue is restored back to the AO with the direction to adjudicate it in accordance with the direction of the ITA T in the case of the assessee on the identical issue in A. Y 2011- 12 dealt with in ITA no. 787/chd/ 2015. This ground of appeal is partly allowed for statistical purposes. 42. Ground No. 3 raised by the Revenue reads as under: 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the reimbursement of interest under TUF scheme of the Ministry of Textiles, Government of India, as capital receipt instead of revenue receipt without giving an opportunity to assessing officer to exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P H) and the decision of the Hon' ble High Court of Calcutta in the case of CIT Vs. Gloster Jute Mills Ltd.(2018) 96 Taxman. com 303 for holding the interest subsidy to be capital in nature. We have gone through the decision of the Hon' ble Jurisdictional High Court in the case of CIT Vs. Sham Lal Bansal(supra), copy of which order was placed before us, and we agree with the Ld. CIT(A) that in the said case also, the issue related to nature of subsidy received under TUF Scheme of the Ministry of Textiles. The Hon' ble High Court, held that for the purpose of determining the nature of the subsidy, the purpose for which the subsidy was given was to be determined and relied upon the decision of the Hon' ble Supreme Court in the case of Sahni Steel Press Works Ltd. Vs. CIT (1997) 94 Taxman 368 and CIT Vs. Ponni Sugars Chemicals Ltd. (2008) 174 Taxman 87 for the aforesaid proposition. Thereafter the Hon ble High court noted that the purpose of the TUF Scheme was to induce the entrepreneur to undertake investment in modernizing the plant and machinery and was definitely not for the purpose of day to day business of the assessee. Accordingly the Hon ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the sale tax subsidy of ₹ 9, 60, 79, 071/- as capital receipts without comparing the scheme of Gujrat Government with that of Punjab Government scheme made by Hon'ble Punjab 85 Haryana High Court in the case of M/s Abhishek Industries Ltd., 286 ITR1? 47. The issue raised in the above ground relates to the treatment of sales tax subsidy received by the assessee mounting to ₹ 9, 60, 79, 071 /- which the Department claims to be revenue in nature, while the Ld. CIT(A) has on the other hand, upheld the claim of the assessee treating it as capital in nature. At the outset itself, the Ld. Counsel for the assessee pointed out that identical issue had arisen in the case of the assessee for assessment years 2011 - 12 and 2012 - 13 wherein the matter had travelled up to the ITA T, which had decided the issue in favour of the assessee treating the sales tax subsidy as capital receipt in their order passed in ITA Nos. 787 894/Chd/ 2015 for assessment year 2011 - 12 and in ITA Nos. 483 518/Chd/ 2016 for assessment year 2012-13 both dated 14. 3. 2019. Copy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter adjudicated the issue. 49. We have heard the contentions of both the parties. We have also gone through the orders of the ITAT in the case of the assessee in assessment years 2011 - 12 and 2012 - 13 to which our attention was drawn and we have noted that the ITAT in the said years has treated sales tax subsidy to be capital in nature taking note of the ratio laid down by the Hon' ble Apex Court in the case of in the case of M/ s Chaphalker Brothers Pune Others (supra) wherein any subsidy received as an incentive for setting up an industrial unit was treated to be a capital receipt. The I TAT held that the sales tax subsidy was also an identical incentive for setting up industrial units and, therefore, was capital in nature. Since this issue has already been adjudicated as above and in the case of the assessee itself in the succeeding assessment years and Ld. DR has not brought to our notice any distinguishing facts, the issue stands covered by the decision of the ITAT as above in favour of the assessee. Ground of appeal No. 4 raised by the Revenue is also dismissed. 50. Ground of appeal No. 5 raised by the Revenue reads as under: 5. Whether on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove will apply mutatis mutandis to this ground No. 2 raised by the assessee. Accordingly disallowance of interest made as per Rule 8 D(2)(i i) of the Income Tax Rules, 1962, is directed to be deleted. Further the disallowance of administrative expenses as per Rule 8 D(2) (i i i) of the Rules, is directed to be restricted to ₹ 5 lacs in all considering the past history of the identical disallowance upheld by the ITAT and applying it to the facts of the present case wherein the assessee has earned exempt income to the tune of ₹ 11. 18 crs. Ground of appeal No. 2 raised by the assessee is allowed in the above terms. 56. Ground No. 3 raised by the assessee in ITA No. 485/2019 reads as under: 3. That the Ld. CIT(A) has erred in law and on facts in upholding the action of AO for treating interest received amounting to ₹ 21, 26, 96, 516/- as 'Income from Other Sources' instead of 'Income from Business and Profession'. 57. It was common issue between the parties that the above ground is identical to ground No. 3 raised by the assessee in its appeal for A. Y 2008 - 09 in ITA No. 484/Chd/ 2019, dealt with by us above. Our decision rendered ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above ground is identical to ground No. 7 raised by the assessee in its appeal for A. Y 2008 - 09 in ITA No. 484/Chd/ 2019, dealt with us above. Our decision rendered therein at para 33 will apply mutatis mutandis to ground No. 6 raised by the assessee in ITA No. 485/Chd/ 2019. Ground of appeal No. 7 raised by the assessee is allowed in the above terms. 64. In effect the appeal of the assessee is partly allowed. ITA No. 612/Chd/ 2019 (A. Y. 2009 - 10 - Revenue s Appeal): 65. Ground No. 1 raised by the Revenue in ITA No. 612/2019 reads as under: 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing interest from customers suppliers amounting to ₹ 4, 00, 63, 000/- to be treated as business income as against A.O. treating the same as income from other sources? 66. It was common ground between the parties that the issue raised in the above ground is identical to ground No. 1 raised by the Revenue in its appeal for A. Y 2008 - 09 in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 37 will apply mutatis mutandis to ground No. 1 raised by the Revenue in ITA No. 612/Chd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 612/Chd/ 2019. Ground of appeal No. 4 raised by the Revenue is accordingly dismissed. 73. Ground No. 5 raised by the Revenue in ITA No. 612/2019 reads as under: 5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing relief to the assessee by holding that MAT credit to be carried forward to subsequent years should be calculated after including of Surcharge and Cess? 74. It was common ground between the parties that the issue raised in the above ground is identical to ground No. 5 raised by the Revenue in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para 52 will apply mutatis mutandis to ground No. 5 raised by the Revenue in I TA No. 612/Chd/ 2019. Ground of appeal No. 5 raised by the Revenue is dismissed. 75. The appeal of the Revenue is partly allowed for statistical purposes. ITA No. 486/Chd/ 2019 (A. Y. 2013 - 14 - Assessee s Appeal): 76. Ground No. 2 raised by the assessee in ITA No. 486/2019 reads as under: 2. That the Ld. CIT(A) erred in law and on facts in upholding the applicability of section 14A of the Income Tax Act, 1961 read with Rule 8D and making disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax Act, 1961. 81. It was common ground between the parties that the issue raised in the above ground is identical to ground No. 5 raised by the assessee in its appeal for A. Y 2008 - 09 in ITA No. 484/Chd/ 2019, dealt with us above. Our decision rendered therein at para 23 - 24 of our order above will apply mutatis mutandis to ground No. 4 raised by the assessee. Ground of appeal No. 4 raised by the assessee is partly allowed accordingly. 82. Ground No. 5 raised by the assessee in ITA No. 486/2019 reads as under: 5. That the Ld. CIT(A) has erred in law and on facts in upholding the action of AO for treating line/bay charges amounting to ₹ 2, 89, 25, 454/- as capital expenditure instead of revenue expenditure. 83. It was common ground between the parties that the above ground is identical to ground No. 7 raised by the assessee in its appeal for A. Y 2008 - 09 in ITA No. 484/Chd/ 2019, dealt with us above. Our decision rendered therein at para 33 will apply mutatis mutandis to ground No. 5 raised by the assessee. Ground of appeal No. 5 raised by the assessee is allowed in the above terms. 84. Ground Nos. 6 raised by the assessee in ITA No. 486/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Revenue in ITA No. 613/2019 reads as under: 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction u/s 80IA and 80IC on interest from customers employee, misc. receipts comprising Brokerage from ocean freights, forex gains and insurance claim? 90. It was common ground between the parties that the above ground is identical to ground No. 2 raised by the Revenue in ITA No. 611/Chd/ 2019, dealt with by us above. Our decision rendered therein at para- 41 will apply mutatis mutandis to ground No. 2 raised by the Revenue in ITA No. 612/Chd/ 2019. Ground of appeal No. 2 raised by the Revenue is partly allowed for statistical purposes. 91. Ground No. 3 raised by the Revenue in ITA No. 613/2019 reads as under: 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in treating the reimbursement of interest under TUF scheme of the Ministry of Textiles, Government of India, as capital receipt instead of revenue receipt without giving an opportunity to assessing officer to examine the claim of assessee? 92. It was common ground between the parties that the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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